This presentation summarises The Climate Institute’s report, Climate Smart Super: Understanding Superannuation & Climate Risk, which examines the impact of climate and carbon risks on retirement and superannuation savings, especially in Australia. Superannuation funds are often Australians’ biggest or second biggest asset but until now very few have had accessible information enabling them to take an active role in managing that asset against climate and carbon policy risks. This report (and presentation) offers a number of simple steps to assist people to engage with their super funds so that they can move from being accidental to active investors and start challenging the dangerous short term focus in business and politics that threatens retirement savings. For more information, visit www.climateinstitute.org.au/climate-smart-super.html

1. The
Climate
Institute
IN COLLABORATION WITH
Climate Smart Super:
Understanding Superannuation & Climate Risk
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2. Climate Smart Super
December 2013
“Superannuation funds are often Australians’ biggest or second biggest asset but
until now very few have had accessible information enabling them to take an
active role in managing that asset against climate and carbon policy risks. This
report (and presentation) offers a number of simple steps to assist people to
engage with their super funds so that they can move from being accidental to
active investors and start challenging the dangerous short term focus in business
and politics that threatens retirement savings.”
John Connor
CEO, The Climate Institute
This presentation summarises The Climate Institute’s report, Climate Smart Super: Understanding Superannuation &
Climate Risk, which examines the impact of climate and carbon risks on retirement and superannuation savings,
especially in Australia.
IN COLLABORATION WITH
The majority of images are from
Michael Hall, Creative Fellow of The
Climate Institute.
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3. Background
There is an emerging awareness of the climate and carbon risks to our superannuation
funds but awareness about disclosure, advocacy and active ownership has been
patchy. The Climate Institute is at the forefront in examining the assumptions behind
such investment decisions and the extent to which climate risk is or is not integrated.
This report aims to inform citizen investors and decision makers on the intersection of business, investment
and climate change. It lays out why managing climate risk in the context of superannuation matters to you,
why you should ask what your fund is investing in and ensure you are comfortable with how your retirement
savings are managed.
It builds on work The Climate Institute has done with its partner organisation the Asset Owners Disclosure
Project (AODP) in getting the world’s largest funds to disclose how much of their investment is in high
versus low-carbon assets. It also includes the AODP’s 2013-14 global climate index results, with a focus on
the performance of Australian funds.
It also looks at the emerging civil economy movement, in the context of fossil fuel divestment campaigns
and activism activities such as The Vital Few campaign.
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4. Understanding Superannuation
& Climate Risk
A.
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5. Understanding Superannuation
& Climate Risk
B.
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6. Understanding Superannuation
& Climate Risk
C.+D.
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7. Understanding Superannuation
& Climate Risk
E.
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8. Are you an accidental investor?
You think only Warren Buffet and a handful of others are the world’s most powerful
investors? Think again. You are.
If you’re working in Australia, your employer has been putting away a minimum of 9 per cent of your
salary for you in superannuation each year since the mid 1990s. By the time you retire, that nest egg is
intended to substantially or completely support you.
There is upwards of $1.6 trillion under management in retirement savings in Australia today. Globally,
that amount is a staggering $30 trillion, nearly twice as big as the entire US economy.
At the moment, most of us are
“accidental investors”, not entirely sure
what our retirement funds are invested
in.
However, a vital few are realising they
can act as citizen investors and can
provide a counterbalance to
short-term and unsustainable
investment decision making.
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9. I own what?
Investment is defined as “putting money in an asset with the expectation of capital
appreciation, dividends and/or interest earnings.”
Banks invest and businesses, from factories to local shops, invest. And you, the average citizen, invest.
As an investor, you control - or should control - your own investment decisions.
Superannuation funds are part-owners of not only some of the largest domestic companies, but also
some of the largest globally. They are mostly invested across all asset classes from property to mining
to agriculture to health services.
This makes superannuation funds
“universal owners”. A well informed universal
owner would know that their interest is best served
when the entire economy performs well. We
believe universal owners with long-term
investment periods need to ensure long-term
social and environmental as well as economic
sustainability.
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10. Is your nest egg exposed?
Many of us are accidental investors in sectors and companies that face or indeed drive
significant long-term risk. Think climate change.
Climate change represents a systemic risk, whose
impacts cascade across economic sectors.
Globally, climate change is already costing an
estimated $1.6 trillion per year, rising to over $4 trillion
by 2030. For Australia, conservative estimates for the
annual costs of unmitigated climate change on the
infrastructure sector alone are about $9 billion by 2020
and $40 billion by 2050.
Extreme weather events will increase with climate change and evidence of economic impacts is not
hard to find. Superstorm Sandy in the United States in 2012 disrupted communication, transport and
other infrastructure closing down Wall Street and the financial sector. In Australia, bushfires and
heatwaves disrupt energy, transport and water supply infrastructure.
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11. Is your nest egg exposed?
Analysis by investment firm Mercer found that climate change is a
systemic risk contributing up to 10 per cent of portfolio investment risk.
At the same time, a survey of Australian funds in 2011 found
that 83 per cent of surveyed funds believe that climate change
is not currently being priced in asset valuations.
So the risk is there
and it’s only growing…
And you and your retirement nest egg are exposed to extreme weather events
and other climate change impacts that are likely to become more frequent.
Globally, climate change is already costing an estimated $1.6 trillion per
year, rising to over $4 trillion by 2030.
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12. A sub-clime carbon bubble
Remember the sub-prime crisis, which caused the global financial crisis and subsequent
recession around most of the globe? There is a frightening parallel between the subprime collapse and the carbon bubble.
Climate scientists are unequivocal that our climate is changing and that global average temperature
has already warmed by almost 1 C above pre-industrial average.
In order to prevent global temperatures from rising more than 2 C, there is a finite amount of fossil fuels
that can be burnt. This amount that the world could still burn is known as the “carbon budget”.
The Carbon Tracker Initiative found that for there to be
an 80% chance of keeping to the 2 C guardrail, only
20-40% of existing coal, gas and oil reserves can be
burnt.
If only 20-40 per cent of known fossil fuel reserves have
economic value, there will be a significant re-pricing
impact on the companies with large quantities of the 6080% of these reserves stranded on their balance
sheets. These reserves have been dubbed “unburnable
carbon”.
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13. A sub-clime carbon bubble
“It is worth recalling that the investors are in so many cases people like you and me…
the looming choice may be either stranding those assets or stranding the planet.”
Angel Gurría
Secretary General of the OECD
October 2013
The OECD head recently
noted that over 55 per cent
of superannuation and
pension funds’ portfolios is
being invested in highcarbon assets or sectors
greatly exposed to climate
change physical impacts
and climate change-related
regulation.
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14. The Asset Owners Disclosure Project
The Asset Owners Disclosure Project (AODP) was originally developed in 2008 as an initiative of The
Climate Institute.
Today the two maintain a close working relationship but the AODP is an independent global not-forprofit organisation aiming to protect people's retirement savings from the risks posed by climate
change. It does this by helping funds to redress the huge imbalance in their investments between highcarbon assets (50-60 per cent of a portfolio) and low-carbon assets (typically less than 2 per cent) and
realigning the investment chain to adopt long-term investment practices.
The AODP has two key initiatives: an annual
survey of the world's 1,000 largest asset owners,
to find out how they are handing their
investments in light of risks posed by climate
change; and a grassroots social media
campaign called The Vital Few, encouraging
members to pose the same question to their
funds directly.
For more information, visit
www.aodproject.net
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15. AODP 2013/14 global climate index
The AODP global climate index ranks the world’s 1,000 largest asset owners – over 800
pension funds, 80 insurance companies, 50 sovereign wealth funds and 50 foundations/
endowments – on how they manage climate risk.
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16. AODP Global Climate Index 2013/14
The best performers from Australia this year are Local Government Super, VicSuper and
AustralianSuper. Each of them is a leader in disclosing the potential impact of climate
change on their investments to their members.
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17. Can anything be done?
Fiduciary Duty
Retirement savings are uniquely required
to be managed for the long-term
interests of fund members – that is you
and me. The managers of our funds,
superannuation trustees, have a direct
fiduciary duty to us as
members/beneficiaries.
Now that you get the idea of how
important your involvement with your
super is - beyond serving as a nest egg
for old age - there are two key things to
understand if you want to make a
difference.
This means that if fund members ask
their funds for certain information, it
should be provided.
In our view this is also means that
trustees ought to manage your
superannuation investments for your
longer term interests.
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18. Can anything be done?
If we can encourage superannuation funds to
shift even a small additional proportion of their
money to low-carbon assets, it is possible to
see billions of dollars redirected,
creating a tipping point and ushering in a
sustainable, low-carbon economy.
Tipping Point
The amount of capital that needs to
be shifted away from carbon-intensive
industries to cleaner ones is large but
manageable. Of the $30 trillion held
under management by retirement
savings funds, less than 2 per cent is
invested in low-carbon solutions.
If we can encourage superannuation
funds to shift even a small additional
proportion of their money to lowcarbon assets, it is possible to see
billions of dollars redirected, creating
a tipping point and ushering in a
sustainable, low-carbon economy.
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19. The civil economy
As individuals place increasing pressure on corporate directors and executives to account
for the wider impacts of their decisions, the proper governance of companies will become
as crucial to the world economy as the proper governing of countries.
Examples of citizen calls for corporate responsibility date as far
back as the 1600s when Amsterdam’s religious groups boycotted
the Dutch East India Company over the use of violence in its
trading operations.
The recent activism in the pension industry is part of the global
democratisation of capital ownership.
It is early days but some investment funds have already begun
demolishing old rules and habits, laying the groundwork for a new
“constitution of commerce” - or civil economy – one in which
investors, corporate executives, information providers, civic lobbies,
political parties, unions, religious institutions and involved citizens
all play a role.
As everyday people get a bigger say in investment decisions, they
also help drive good long-term financial management.
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20. The civil society vs. civil economy
Civil Society
Civil Economy
Accountable Government
+ Constitution
+ Elections
+ Limitation of powers
Accountable Corporations
+ Constitution of board (i.e. board charter)
+ Election of boards
+ Powers of executive limited
Informed Electors
+ Voters understand and able to choose between coherent
political programs at elections
Engaged Shareowners
+ Owners’ fiduciaries (e.g. fund managers)
informed, skilled, and appropriately engaged
with the companies they invest in
Independent Monitors
+ Free press, independent judiciary
+ Independent statistics, freedom of information
Independent Monitors
+ Fully independent annual audit giving
information owners need
+ Voting advisory services, remuneration
consultancies transparent and unconflicted
Credible Standards
+ Relevant and independent statistics and other ways to
measure performance
Credible Standards
+ Relevant and independent statistics and other
ways to measure performance
Civil Society Organisations
+ Freedom within the law and the constitution to campaign
to change government policy
+ Acceptance of the right of others to scrutinise background
and motivation of any such action
Civil Economy Organisations
+ Freedom within the law to campaign to
change company policy
+ Acceptance of the right of others to scrutinise
background and motivation of any such action
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21. Are you The Vital Few?
In many cases, to see change a big push is required. But
when it comes to getting your super to respond, it may
not take much. That’s because even though a fund may
represent thousands of people, even one member asking
a question requires a proper response.
The power of the few is being tested by The Vital Few
campaign, which believes that citizen investors have a
right to request that their funds invest in a way that
doesn’t compromise their pockets, or the planet. It
enables members to post those questions to their funds
directly, through an online platform and just a few clicks.
Funds are sensitive to public opinion and care about how
they are perceived. This makes them vulnerable to their
members’ opinions, which in turn empowers fund
members. Thus, the world’s single largest pool of wealth
could be shifted away from being a driver of climate
change, to being a provider of climate solutions.
www.areyouthevitalfew.org
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22. What are you action options?
LEARN
Educate yourself about your retirement
savings and their relationship to
climate change. Reading this report
and considering your own situation
constitutes a good start.
ENGAGE
You can get directly involved with
helping to drive disclosure of carbon risk
exposure and super funds’ carbon
pricing assumptions. Through The Vital
Few you can participate in a grassroots
pressure push to get superannuation
funds thinking.
COMPARE
You can also check up on and even change
your superfund, if you don’t like the practices
of your current one. Initiatives like the AODP
survey of the world’s largest 1,000 asset
owners assess funds in the area of
transparency, risk management, investment
chain alignment, active ownership and
low-carbon investment.
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MOVE
You have checked how your
fund ranks on the AODP
index and you have asked
your fund for more
information. If you are still
unhappy, have a chat to your
financial advisor, and move
to a fund that is more
representative of your
values.
LOBBY
Old fashioned lobbying of local politicians may seem
outdated. But the practice is still there, in fact made
easier by social media tools and email. An ask you
should be putting to your local Member of Parliament is
to ensure that regulations are in place to require funds
to measure, disclose and manage the climate change
risks their investments are exposed to.
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23. Afterword
I knew we were in trouble when a leader in the Australian financial services sector told us
“in our business mate, ninety seconds is a f#@!ing eternity.” We’d met him to
discuss our efforts to re-prioritise long-term interests in the over $1 trillion superannuation
industry.
Since 2007 The Climate Institute has “followed the
money” back up the investment chain tracking the
basis for investment decisions in high-carbon
assets like coal power stations, coal mines and
more. In Australia over $1.6 trillion, more than
Australia’s annual GDP, is held in superannuation
funds whose legal purpose is to manage funds for
our long-term interests – our retirement.
Lifting our gaze from the market traders screen
reveals that too much of our retirement funds are
invested in high-carbon, high-risk investments
resting on a speculative bubble of climate denial,
indifference or delay. Acting together as citizen
investors we can help create an investment
tipping point in low-carbon, climate solutions. We
hope this report helps in that endeavour.
John Connor
CEO of The Climate Institute
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24. Doing it yourself?
This guide is directed at those citizens who are members of traditional superannuation funds. But not
everyone in Australia saves for retirement this way.
Almost one-third of Australia’s superannuation pool is held in self-managed superannuation funds
(SMSFs). If you have a self-managed fun, how can you manage climate change risk?
•
•
•
•
If you are invested in pooled funds… Contact the fund managers to find out what the funds are
invested in. If you’re looking for a pooled fund, see the list of service providers certified by the
Responsible Investment Association Australasia. www.responsibleinvestment.org
If you are invested in shares directly… Check out the Carbon Disclosure Project for details on how
the world’s largest companies are managing risks associated with carbon. www.cdpoject.net
If you are invested in property… Improve your property’s energy efficiency and use of materials. Find
out more at the Green Building Council of Australia www.gbca.org.au and get familiar with the
National Australian Built Environment Rating System www.nabers.gov.au
If you are invested in cash… Find out whether or not your bank is financing projects you may not be
very comfortable with and consider asking them to change their practice
www.marketforces.org.au/banks
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25. More information
Visit
www.climateinstitute.org.au/climate-smart-super.html
Or connect with us on Facebook or Twitter for the latest news on global climate action…
www.facebook.com/theclimateinstitute
www.twitter.com/climateinstitut
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26. What do you think about superannuation?
We asked a few
people around
Sydney what they
thought about their
superannuation and
its link to climate
change.
CHRISTOPHER THE
LUCY PHELAN
RODOLFO KEY
SAMANTHA LEE
Do you think of
superannuation in
the context of
climate change?
Never thought of it that
way.
I’ve thought about it in
regards to insurance.
But yes, generally I
have wondered where
my money is being
invested.
I’ve never related the
two topics.
I do think about super
and how your money is
invested in a whole
range of things.
If you knew there
were actions you
could take to make
your super more
'climate smart',
would you take
them?
Possibly yes. But I’d
mostly want something
safe as an investment.
So I would have to
research it.
Yes, probably.
Yes I think it would be
interesting to see how
climate change would
affect the value of any
portfolio and then how
investment decisions
would affect the
viability of clean energy
outcomes.
It’s complicated
because I think that
shifting super seems
like quite a big task. I’m
just thinking practically,
but it would have to be
a very climate-minded
individual to change for
those reasons.
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27. Thanks
This project was conducted with support from
•
•
Dara Fund No. 2
E.M. Horton Family Fund Hamer Sprout Fund
Sub-funds of the Australian Communities Foundation
•
•
Poola Charitable Foundation –
Tom Kantor Fund
Ogilvy Public Relations
For more information on how you can support our work visit
www.climateinstitute.org.au/support-us.html
Note
The information provided in this report does not constitute financial product advice or legal advice. The Climate Institute does not hold an Australian Financial
Services licence, nor does it make any recommendation in this report about any superannuation fund or any other financial product. You should obtain
independent professional advice in assessing the effect of the information on your circumstances and before making any financial decisions. Although The
Climate Institute attempts to provide accurate, complete and up to date information which has been obtained from the sources that are considered reliable, it
makes no warranties or representations, expressed or implied, as to whether the information provided in this report is accurate, complete, or up to date.
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